Is Refinancing Worth the Cost?
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Have you ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate is at least 2 points under your existing rate? That might have been valid years ago, but with the fact that refinancing has been costing less in recent years, it is a good time to consider a new mortgage loan! Refinancing your loan has various benefits that often make it worth the up-front expenditure several times over.
Advantages of Refinancing
You could be able to bring down your interest rate (sometimes by a lot) and have smaller mortgage payments with your refinanced mortgage. Additionally, you may have the option of pulling out some of the equity in your home by "cashing out" some money to fix up your home, consolidate debt, or plan a special vacation. With lower rates, you might also get the chance to build your home equity faster by changing to a shorter-term mortgage loan.
Expenses and Fees
All of these benefits do come with some expense, though. You'll have the same types of expenses and fees as you did with your existing home loan. These may include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Do the Math
You might think about paying points to reduce your interest rate. If you pay (on average) three percent of the loan amount at the start, the savings for the life of the new mortgage loan can be substantial. We recommend that you talk to a tax professional before acting on hear-say that these paid points can be deducted on your taxes.
Another expense that borrowers might take into account is that a lower interest rate will reduce the interest amount you will deduct from your taxes. Call us at 701.222.0100 to help you do the math.
All things considered, for most borrowers the total of initial costs to refinance will be paid back very quickly in monthly savings. We can help you explore what your options are, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the next couple of years, and your available cash. Call us at 701.222.0100 to get you started.
Want to know more about refinancing your home? Call us at 701.222.0100.